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What are the effects of the coronavirus epidemic on Hungary’s economy and budget?
The epidemic has several direct effects: the spending side of the budget is strongly increased by the tasks of the health system and economic protection, and it also affects investment and wages.
For example, this year at least HUF 3 billion will be “spent” on healthcare spending in Hungary, compared to HUF 2 billion projected.
The virus was unknown before, so research needs to be funded, there are also costs to combat it that consume horrible sums in the world – this is the direct side of health protection, as well as day-to-day operations and development. day.
In addition to the extra organization, the extra work time, various groups of expenses appear, not only PCR tests should be considered, but also, for example, military or police presence in hospitals and schools. There are also operational costs, just think about the just-in-time deliveries that all of Europe used to have. There is also an already looming burden with synergies – keeping schools viable, for example, is a huge extra task and cost, and online education has required a lot of new purchases as well. Everything has a “penny cost”, it is enough to place it somewhere in a classroom like “Don’t sit on top!”. It can cost up to 4-5 florins per piece.
There are key areas, like schools, universities. The main objective is to keep the primary education institutions functioning, because if they close, parents will not be able to work either, which can create a difficult situation. There are branches of the national economy that have been paralyzed, for example, it is very questionable in how many years tourism will recover. I fully agree with the other two members of the Budget Council (György Matolcsy, Governor of the Central Bank, and László Domokos, President of the Court of Accounts) that
the world will no longer be the same as it used to be
whatever we do, so our investment and mindset don’t have to be furnished like there’s an intermezzo and everything continues. By the way, despite all the problems, as a university student, as a grandfather, I can say that despite all the momentary difficulties and disturbances, we have nothing to be ashamed of. The system is working.
It would be convenient to use the investments that are now created with this enormous budgetary room for maneuver, the deficit of the public administrations of 3,600,000 million HUF, which will increase ten times more than originally planned. This can be financed for the most part from domestic sources, in addition to which foreign sources must also be used.
How much is this investment worth?
To something worthwhile beyond the thoughtful solution of tasks dictated by momentary need, and that is the most difficult. I don’t like the free money because there is no requirement attached, there is no differentiation so this is just a substitute for fire suppression. It is necessary to spend quality and focused, not in terms of dispersion of money, but also to find areas that are an investment in the future: intellectual work, technology, innovative areas, telecommunications, space technology.
The crisis has created a situation in which increasingly complex decisions must be made in an increasingly shorter time and in an increasingly appropriate manner, leading to changes in decision-making technology in a number of areas . We need to shift to an investment mindset where we think not just specifically, but the human mind, technologies.
We must be very careful that the opportunity to spend does not turn into tax alcoholism, we do not kick it! Here is the opportunity to take advantage of it, to spend it, to do it, but with the intention of creating a more far-reaching value from this, in addition to facing the crisis that has developed, and not just living well in the moment.
Budget expansion and conservative financing are not mutually exclusive. However, it doesn’t matter where we put the money.
It should be seen, for example, that if tourism is not going to return to where it used to be, it may not be necessary to invest money in hotel investments now.
We will be forced to make flexible structural changes, which will create new human, business and grant-making situations.
At the same time, it can also be seen that part of the business sector, such as delivery, catering or online ordering, has won the crisis and sees it as an opportunity. The slow, the slow to adapt, the one waiting for external help, is the most affected by the epidemic, not to mention the objectively difficult ones already mentioned.
Do you see a decrease in tax revenue?
Minimally. There is a 4-5 percent decrease in the semi-annual budget, which is favorable in the current situation. This is a spending-type crisis, the economic effects of which will be felt gradually. The forecast is that there will not be a great difference with the income of last year, there will be a jump in expenses, necessarily, precisely to maintain the positions in the future.
This year’s budget was adopted with a deficit target of 1 percent. Where will this end?
A war of numbers has begun. It is not necessarily good for this year that the deficit figure is better because we cannot spend the money in defense sensibly, or because we cannot find quality goals, or because we are slow in the management and administration mechanisms. For Hungarian numbers
- 5 percent economic recession around,
- Expressed in terms of GDP, the deficit is around 7 percent and
- 77 percent of public debt as a percentage of GDP
we wait. This is relatively more favorable than a few countries, but there are some of the Visegrad countries, for example, that perform better, we are somewhere around average on this. We stand united and united, accepting the truth of the motto, we can succeed together, accepting goals, the power of identification.
Can we return to a more conservative fiscal policy next year? Or will the epidemic remain the main driver?
There are various scenarios. According to the simplest and most favorable modeling option, the epidemic will end approximately in the flu season, we will be able to get away with it by mass vaccination, there will be a vaccine in the spring, the cost of which will be significant, but the uncertainty will disappear. There is a chance that we will hit our performance a year and a half ago by the end of next year.
In practice, the coronavirus epidemic wiped out nearly two years of work with its blows.
And now I haven’t even talked about a worse and longer scenario.
How is this crisis different from previous ones?
The former were economic in nature: stemming from overspending, flawed investment policies, the cyclical nature of capitalism, money market innovations like the housing bubble, poisoned bonds. This is now completely new: with its ignorance, its paralyzing effect, its insecurity, its fear, its loss of confidence, its indulgence, the disintegration of cooperation.
Until now, the world has focused on cooperation and is now moving towards isolation.
There will be a different world because we have encountered a different problem here now.
This year’s budget was approved with a euro exchange rate of 321 guilders, now the exchange rate is above 360. In addition to the above, can a weakened guilder have a negative effect on the budget?
The weakening of the forint has two sides: the weaker exchange rate alone is not good for the budget, for example, it appears in budget spending and loans, but it also helps exports, which contributes to growth. The central bank is not convinced to emphasize that it does not have an exchange rate target, which is completely natural, because it looks to the future, but has to adapt to the given situation, and on some occasions its policy has served it well . It should be seen that this demand for money can no longer be financed solely by internal assets and, if necessary, it is also possible to obtain money from external sources quite efficiently and on favorable terms. Orthodoxy must be excluded from this. Then you have to adapt.
György Matolcsy spoke at the online meeting of wandering economists on Thursday about the fact that governments and central banks will enter into a strategic alliance in this decade, which will characterize their policies. What changes can this bring to the budget level?
The idea so far has been that monetary and fiscal policy did not work as a complement. From now on, that will change. For example, it does not ruin fiscal policy instruments with high interest rates, as there have been some examples, and public finance financing has become more expensive. It would be strange if the central bank also began to work against a prudent expansionary fiscal policy. Financial alliances between central banks and governments are emerging around the world. It is not the task of the European Central Bank to now deal with the depreciation of the euro or the senseless slowdown in the creation of financial rescue packages, but to help expand the EU budget with various programs, within a reasonable framework, which is good to deal with the current situation.
The other question is that if the wound of these wounds begins, the most difficult thing is to return to the monetary and fiscal policy that encourages saving and the creation of reserves, and that in recent years has laid the foundations on which we can now count also here in Hungary.
Book cover: Index / Isza Ferenc
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